In his 1987 hit song, “Got My Mind Set on You,” George Harrison sang that “it’s going to take plenty of money to do it right” — as well as “patience and time.”
If you’re a researcher with a big idea that you feel could make a big difference — such as a way to measure a body’s core temperature without using a painful sensor needle, a beam to help direct self-driving cars, or a battery for an electric vehicle that’s less hazardous and can provide more range — you need money, patience and time to see it through. Most investors have the money but not the patience and time.
That’s where SBIR and STTR grants come in.
The highly competitive grant programs encourage research by small U.S. businesses with the aim of putting innovative, profitable products on the market. The STTR program also requires small businesses to collaborate with nonprofit research institutions such as CU Boulder.
Thanks to the 44-year-old Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, Longmont-based LumenAstra Inc. is developing that noninvasive core temperature sensor, and Lafayette-based Boulder Nonlinear Systems Inc. is perfecting a beam linked to 3-D mapping to safely steer self-driving vehicles.
Meanwhile, Louisville-based Solid Power Inc. has used the boost it got from the grant programs not only to perfect its solid-state EV batteries but also to lure partners Ford Motor Co. and BMW Group, land a $135 million Series B investment round led by Ford, BMW and Volta Energy Technologies, merge with Decarbonization Plus Acquisition Corp., and prepare to go public on the Nasdaq exchange this fall.
Solid Power, a spinoff from the University of Colorado Boulder’s College of Engineering, was “awarded over 10 SBIR and STTR grants of over $10 million total,” noted Brynmor Rees, assistant vice chancellor for research and innovation and managing director for Venture Partners at CU Boulder. “They were able to get a significant amount of early-stage research funding through this program and do so in a non-dilutive way.
“It can be a hugely beneficial asset and resource for companies that are in one of those science and engineering areas that are early-stage — probably still too early to go out and raise significant venture capital,” Rees said. “Even if they are ready to raise VC, it can be advantageous to get funding that is considered non-dilutive. That means that when the company accepts a grant, the funding agency is not taking any equity for that. The company founders are not getting diluted — whereas in a private-venture investment, the investors are taking equity in a company. The grants are a really great resource for the founders.”
‘De-risking’
Another advantage, Rees said, is “de-risking.”
“If a company is going to be commercializing something that is novel, disruptive, usually a new technology, there’s high risk, needing a lot of research and development to show that they can function in a relevant environment,” he said. “The grants remove the technical risk that is really inherent in bringing disruptive technology to the market.”
Boulder County is a national leader for use of the grants. For fiscal years 2014 through 2020, innovators in the Boulder Metropolitan Statistical Area — comprising Boulder County — lured $394,394,185 in SBIR and STTR grant funding. Boulder County ventures pulled in about a third of the Colorado total in 2020 and more than half of it in 2019. The recent Boulder Innovation Venture 2.0 report, prepared for the Boulder Chamber, noted that the figures amount to around $800 per person living in Boulder County, a per capita rate substantially higher than in other technology hubs such as California’s Silicon Valley; Boston-Cambridge, Mass.; Ann Arbor, Mich.; or Bryan-College Station, Texas. For the city of Boulder alone, the per capita rate was even higher, nearly $1,700 per person.
“The advantage is that we don’t have to go and try and find investors and convince them to invest, and they generally want a quick turnaround for their money,” said Jay Stockley, senior research scientist at Boulder Nonlinear Systems. “With government, the timeline’s a lot longer, which is good and bad. With government, it takes longer to develop the technology to a product level, but at the same time you’re not under the gun to get something done by the next quarter or else.”
Jim Pollock, LumenAstra’s founder and CEO, agreed. “Your product might need another year of research, and there wouldn’t be any product during that time, so no revenue,” he said. “You can’t get angel or VC money if you don’t have a product yet. So what do you do? You’re either going for friends and family — or going for research grants.”
Eleven federal agencies — including the National Center for Atmospheric Research, National Renewable Energy Laboratory, National Institutes of Health, the National Science Foundation, the Department of Defense, the National Institute of Standards and Technology and NASA — participate in the SBIR program, and five of those also participate in STTR.
Despite the Boulder area’s prominent research institutions, the Innovation Venture 2.0 report showed that area ventures received around 10 times more in SBIR grants than STTR grants.
“Both awards go directly to the company, but under STTR a company must subcontract to a research university,” Rees explained. “Under SBIR, the principal investigator has to be at least 51 percent employed at the company. If it’s through a university, you need to designate somebody in a company as the PI.”
Boulder Nonlinear Systems prefers to seek SBIR grants “because all the money’s in house. We don’t have to split it with the research institution,” Stockley said. “At the same time, partnering with an institution can bring you other opportunities. But we’re doing it all here. We have an R&D bent. We do a lot of contracted research, and we have a number of masters-level, Ph.D.-level technical engineers.”
The grants are broken into three “phases.” Phase I is meant to establish the technical merit, feasibility and commercial potential of the proposed R&D efforts and to determine the quality of performance of the small business receiving the grant. Phase II pays to continue the research started under Phase I, and Phase III helps awardees pursue commercialization.
They’re not for just any product development, however, Rees emphasized. “SBIR and STTR have specific restrictions. They are really designed for translational research to commercialization, not open-ended research” — and, hopefully, for disruptive innovation.
Sometimes, agencies will put out a call for grant applicants, he said, “and a company can go and look at each agency and see what types of proposals each agency is seeking. There’s also open calls for proposals.”
Women innovators
The grants, nicknamed “America’s Seed Fund,” also present new avenues for female innovators, who remain disproportionately challenged when it comes to luring angel investors or venture capitalists. According to a report released last summer by the National Women’s Business Council, women-owned small businesses account for about 15% of Phase 1 proposals and about 14% of Phase 1 grant awards — and the Colorado figures echo those numbers. From 2005 to 2017, female-owned companies received more than 20% of SBIR/STTR funding in both Boulder and Colorado Springs. The Colorado Small Business Development Center Network’s statewide TechSource program recently launched a virtual Tech Venture Accelerator for Women (TVX-W), targeting Colorado-based, women-owned science and technology businesses that have the potential for submitting SBIR or STTR proposals.
Rees pointed to several CU Boulder spinoff companies that “are currently where Solid Power was several years ago” and have leveraged the grants. Aspero Medical Inc., for instance, is commercializing a novel endoscope technology that prevents slippage and can reduce failed endoscopies. Artimus Robotics Inc. developed a soft, flexible robotic actuator, transitioning from a robot made from hard metal or plastic components to one that moves more like an octopus.
“In the course of their university research, some of them created a side startup company, licensed the intellectual property to the company, and then their company commercializes it and can get those grants,” Rees said. “We also see our startup companies contracting a lot of the work back to the university just for the research expertise and equipment.”
Such a company is LumenAstra, which has five research students working on its project in a CU lab — two post-doctoral, two doctoral and one master’s candidate.
“I spent three years as a volunteer entrepreneur in residence with Bryn (Rees) in the tech transfer office,” Pollock said. “I worked with CU faculty who had inventions and patents and helped them figure out ‘Is your idea commercializable? How would you go about commercializing it? What’s the path forward? And then, what would your role be, Mr. Researcher?’
“In the course of that, I ran across Dr. Zoya Popovic, head of the radio frequency lab at CU’s electrical engineering department. She had a patent issued in 2019 for a core body temperature sensor, a wearable non-invasive device. Now, the only way to really get inside the body is with catheters and sensor-tip needles. There’s a whole bunch of issues with those — besides that it hurts!
“I thought, ‘This is really novel.’ It’s something like a silver-dollar sized medallion. You can place it anywhere on your body – head, chest, leg,” Pollock said. “It’ll measure temperature several centimeters below the skin without any invasion. It’s totally passive. It just listens.”
He said the sensor uses the same type of infrared technology used by radio astronomy receivers “that lets us measure temperature and properties of stars 10,000 light years away. So that’s how we got the name for LumenAstra: a window to the stars.”
Pollock made “a whole bunch of customer calls” to determine whether something like this already existed at the academic level that he didn’t know about. The feedback he got, he said, was “a tremendous amount of excitement” from doctors.
“Their first reaction was, ‘Wow, this sounds really incredible,’ then ‘I’m not sure how to use it because I’ve never had anything like this,’ and finally, ‘Oh, yeah, I can think of some things!’
“So we knew there really is something here, and we started the company in mid-June 2020,” he said. “They always say the best time to do a startup is during an economic downtown because you’ve got great people available. Now you have to add during a pandemic.”
Next came pursuing a funding strategy. “No. 1 was to get the money for the lab so Zoya could put researchers on it. Next, start working on the commercialization. Zoya went to the National Science Foundation and got a $350,000 fundamental research grant, which funded one of our Ph.D. students. Then we competed in the Lab Venture Challenge hosted by CU but competing against any research coming out of a lab in Colorado — CU, CSU, Mines, NCAR, NIST — and we were co-awarded first prize and $125,000 that got us another student working on it. Then Zoya went out for a follow-on grant and she won that $250,000 too. That got us up to $750,000 that we raised with grants only for the lab.
“Next, LumenAstra applied for an SBIR in December and was awarded a $256,000 Phase 1 grant just last week. We also applied for a $400,000 Phase 1 STTR grant with National Cancer Institute to measure brain temperature, and they came back and said they liked us — but we put it on hold because that now would be a distraction for us. We want to do that later. The dearth of a lot of companies is that when they are successful in getting multiple grants, they end up getting themselves too scattered and not focused enough to get a single product out. So that’s something you have to be careful about.”
Application process
Most startup companies apply eight or 10 times to get one grant, Pollock said, “but Zoya and I are four for five in grant applications, and that fifth one is the one we’ve put on hold. But this validation means NSF really thinks we must have something here, and that helps us get some traction with some angel investors. But SBIR was really the only thing available to a company like ours.”
At Boulder Nonlinear Systems, which started with two people in 1988, Stockley described the application process as “not really that onerous.”
The company began with an Air Force $750,000 SBIR grant and has received a total of around $2 million in the grants over 10 years, he said. “That’s the thing about SBIRs; it’s not all at once. It’s a slow thing. You get these two-year contracts of about three quarters of a million at a time, and it ends up chunking out about a decade of time.”
After a grant is received, he said, “there’s an auditing process to make sure we’re charging correctly to the correct project. When the auditors come in, they want to make sure, ‘Hey, what’s this person working on? How do you know they’re working on it?’ But that’s easily doable.”
Most of the money from a grant goes to labor, Stockley said, but some also buys equipment unless it’s provided by the government. If the latter, he said, “is this a contract where the government wants to retain the equipment? Otherwise, maybe you’d rather use internal money to buy that equipment so you could keep it. Or you could ask the government, ‘Do you guys want this, or to sell it to us?’ We’ve bought things like cameras and lasers from them. Lenses and stuff, they’re not as excited about because they can get that pretty easily. They might say, ‘Make us an offer on that.’ It’s not a free lunch.”
The company is showing off its spatial light modulator this month at the Society of Photo Instrumentation Engineers conference in San Diego — and Stockley credited the grants for helping make it possible.
Rees said CU Boulder has recognized SBIR and STTR grants as such a critical funding source that it created a Center for Translational Research a little over a year ago.
“It provides our researchers with resources and coaching to help them write and submit competitive SBIR and STTR grant proposals,” he said. “We’re seeing that that’s increasing the number of applications our researchers submit and also seeing an increase in their success rate in winning them. And since the funds have to go to a company, our researchers are starting startup companies of their own.”
“Now I really get how important these things are, being to fund very early research,” said LumenAstra’s Pollock. “It gives a chance for something that’s super risky but could have a huge payback for society down the road.”
